February 19, 2014
Divest or Engage Meets the Capital Markets
by Robert Kropp
Investors aligned with Ceres with Ceres file ten resolutions addressing stranded fossil fuel
assets, and Green Century Capital Management announces its Equity Fund will become fossil free.
Stranded assets, which refer to the fossil fuel reserves that will have to stay in the ground if
global temperature increases are to be limited to two degree Celsius, form the basis for the
divestment movement on college campuses, where students are pressuring their colleges and
universities to divest their holdings in fossil fuel companies.
institutional investors prefer engagement to divestment, and choose corporate dialogue and the
filing of shareowner resolutions over emptying their portfolios of fossil fuel companies. During
the 2013 proxy season, resolutions addressing stranded assets were filed with two of the nation's
largest coal companies. In November, 70 global investors, which collectively manage more than $3
trillion in assets, wrote to 45 of the largest fossil fuel companies in the US, requesting that
they report on the exposure to and management of risks associated with stranded assets. The
investors specifically requested that the companies respond in advance of the 2014 proxy season.
It was recently reported in SocialFunds.com that members of the Interfaith Center on Corporate
Responsibility (ICCR) filed resolutions addressing stranded assets. “Investors are concerned
that actions to significantly reduce GHG (greenhouse gas) emissions could reduce the value of
Chevron’s oil and gas reserves and/or related infrastructure before the end of their expected
useful life,” one such resolution states.
Ceres, which organized last year's investor
letter to fossil fuel companies, announced last week that six institutional investors have filed
resolutions addressing stranded assets with 10 fossil fuel companies. The companies targeted by the
resolutions include ExxonMobil, Chevron, Southern Company, Hess, Anadarko, Devon, Kinder Morgan,
Peabody Energy, FirstEnergy and CONSOL Energy.
“Climate-related trends such as
carbon-reducing regulations and clean energy growth are a real threat to fossil fuel companies’
future profitability, but most firms have relegated it to the ‘someday’ pile when it comes to
corporate priorities,” Ceres president Mindy Lubber said. “
“The likelihood that fossil
fuel companies will experience a significant threat to their valuation grows each year,” said
Danielle Fugere, President of As You Sow.
“These companies are producing the vast majority of climate-changing emissions and now is the time
for them to reduce risk. If they are not preparing to survive in a carbon-constrained future, we
expect shareholders will sit up and take notice.”
But sustainable investors have come down
on both sides of the divest or engage debate. Green Century Capital Management, whose Balanced Fund has
been fossil fuel free for many years, announced last week that as of April 1st its Equity Fund will
become fossil fuel free as well. Green Century's family of funds has not invested in oil or coal
companies since 2005, and now gas companies will be divested as well.
“As Green Century
uncovered and examined the reputational risks and potential investment risks of hydraulic
fracturing (fracking) over the last five years, our analysis of the companies engaged in this
controversial and environmentally damaging practice has changed,” the firm stated. “We no longer
believe gas companies can be a viable investment for an environmentally responsible mutual fund.”
“Growing numbers of people want to avoid supporting the industries that are most
responsible for the climate changes that are contributing to the dire drought in California and the
devastating snowstorms in the South,” said Leslie Samuelrich, President of Green Century. “Since
fossil fuel corporations are determined to burn their carbon reserves, which are five times the
amount that scientists say our planet can safely absorb, there is a growing concern that investors
may face a carbon bubble if carbon restrictions are put into place. With so many unknowns in the
future, why not avoid the widely reported possible risk of stranded assets?”